Exam 9: Responsibility Accounting

Indicate whether each of the following statements is

Explain how the management by exception doctrine relates to responsibility accounting.

For Year 1,Division C of Deerfield Company reported operating assets of $8,800,000,revenues of $6,600,000,and operating expenses of $5,760,000.The company has established a target return on investment (ROI)of 10% for the division. Required: 1)Calculate the Year 1 ROI for the division.Did the division achieve its target ROI for the year? 2)For Year 2,Division C managers expect that its operating assets will stay at about the same level as for Year 1.Variable expenses for Year 1 were $3,960,000,and the remaining expenses were fixed.The managers expect that the contribution margin ratio for Year 2 will be the same as for Year 1 and that the amount of fixed expenses will not change.To what level must sales increase in Year 2 to achieve the target ROI?

Fairpoint Products provided the following selected information about its consumer products division for the current year: Desired ROI 8\% Net Income \ 100,000 Residual Income \ 60,000 Based on this information,the division's investment amount was:

Curtis Company's balance sheet and income statement are provided below: Cutis Company Balance Sheet December 31,2014 Assets Cash \ 80,000 Accounts receivable 56,000 Inventory 30,000 Plant and equipment 440,000 Less accumulated depreciation Total assets \ Liabilities and Stockholders' Equity Accounts payable \ 24,000 Notes payable 80,000 Capital stock, no par 180,000 Retained earuings Total habilities and stockholders' equity \ Change date to Year 1 or current Year for 2014 on both statements. CHANGE NEEDS TO BE MADE TO TABLE Delete the ",2014" form the heading Cutis Company Income Statement For the Year Ended December 31,2014 Sales \ 480,000 Less variable costs: Manufacturing 120,000 Selling and administrative \ 110,000 Contribution margin 250,000 Less fixed costs: Manufacturing 90,000 Selling and administrative 40,000 Net income \&120,000 The company pays its senior managers a bonus based on ROI. Required: 1)Compute the company's ROI assuming that the amount of operating assets is measured at: (a)cost; (b)book value;and (c)current replacement value,$700,000. Round ROI to one decimal place (i.e.4.6%) 2)What is the lesson of this exercise? CHANGE NEEDS TO BE MADE TO TABLE Delete the ",2014" form the heading

Jacob is a department manager who recently instituted a new recognition program for his employees.He budgeted the cost of the new program at $10 per employee,but actual costs were $15 per employee.The cost associated with the recognition program would be considered which of the following kinds of cost?

Which of the following is not typically found in a decentralized organization?

The New Products Division,of Testar Company,had operating income of $8,000,000 and operating assets of $44,800,000 during the current year.The New Products Division has developed a potential new product that would require $8,500,000 in operating assets and would be expected to provide $1,400,000 in operating income each year.Testar has set a target return on investment (ROI)of 16% for each of its divisions.Assuming that the new product is put into production,calculate the division's ROI.

Select the incorrect statement concerning responsibility reports.

How might return on investment be used in making resource allocation decisions within an organization?

The Premium Product Company has three production departments: machining,assembly,and finishing.The three departments are under the control of the vice president of manufacturing.Each department has a manager,and one or more supervisors report to each department manager.Accordingly,the chain of command goes from vice president to department manager to supervisor.The responsibility reports for the two supervisors in the Machining Department are provided below: $\quad$$\quad$$\quad$$\quad$$\quad$$\text { Machining Department - Shift Supervisor }$ Flexible Budget Actual Results Variance Materials \ 18,000 \ 18.750 750 Laber 37,500 41,250 3,750 Repairs 3,000 2,400 600 Maintenance Total \ 60,000 \ 63,800 3,800 $\quad$$\quad$$\quad$$\quad$$\quad$$\text { Machining Department - Shift Supervisor }$ Materials Laber Repairs Maintenance Total Flexible Budget 14,200 27,000 1,800 44,000 Actual Results 14,100 24,750 2,020 42,200 Variance 100 2,250 220 1,800 Other pertinent cost data are provided in the following table: Cost data of other departments: Assembly Finishang Administrative costs associated with: Machining Department Manager Vice President of Manufacturing Flexible Budget \3 02,500 176,250 50,000 82,500 Actual Results \1 99,000 180,300 48,500 85,650 Variance 3,500 4,050 1,500 3,150 Required: 1)Prepare a responsibility report for the manager of the Machining Department. 2)Prepare a responsibility report for the Vice President of Manufacturing.

Which of the following statements regarding profit centers is correct?

Terra Company has two divisions,the Retail Division and the Wholesale Division.The following information was gathered for the two divisions for the current year: Retail Division Wholesale Division Operating income \ 2,500,000 \ 6,000,000 Operating assets \ 16,000,000 \ 36,000,000 Terra Company has set a target return on investment (ROI)of 15% for both divisions Which of the following statements is accurate?

When using residual income as a project-screening tool,management should accept a project if the residual income is:

A tool that is often used to depict the lines of authority and responsibility within a firm is:

Willis Company made a $200,000 investment in new machinery.Assuming the company's margin is 4%,what income will be earned if the investment generates $600,000 in additional sales?

All of the following are characteristics that are required for effective responsibility accounting except:

Carver Company's balance sheet and income statement are provided below: Carver Company Balance Sheet December 31,2014 Assets Cash \ 40,000 Accounts receivable 52,000 Inventory 80,000 Plant and equipment, net of depreciation 280,000 Land held for future plant expansion Total assets \ Liabilities and Stockholders' Equity Accounts payable \ 45,000 Notes payable 58,000 Capital stock, no par 240,000 Retained earuings Total habilities and stockholders' equity \ Change date to Year 1 or current year from 2014 in both statements. CHANGE NEEDS TO BE MADE TO TABLE Delete the ",2014" form the heading Carver Company Income Statement For the Year Ended December 31,2014 Sales \ 330,000 Less variable costs: Manufacturing 68,000 Selling and administrative \ 48,000 Contribution margin 214,000 Less fixed costs: Manufacturing 68,000 Selling and administrative 56,000 Net income \&90,000 Required: 1)Compute the margin,turnover,and return on investment for Carver Company. 2)What is the advantage of expanding the ROI formula to measure margin and turnover separately? CHANGE NEEDS TO BE MADE TO TABLE Delete the ",2014" form the heading

The concept says that managers should be evaluated on the basis of revenues and/or expenses they can control is known as the:

What methods are used to measure operating assets for calculating return on investment? Which of these approaches would you recommend? Explain your choice.